Alliance Data: On the Move

Navigator Edition: June/July 2013
By: Ryan Douglas

Alliance Data (NYSE: ADS), with strong roots in the retail credit card market, has been expanding the size and reach of its credit card business. Over the last 18 months, ADS has grown its receivables by 35% via a series of portfolio acquisitions and new product launches. This growth is particularly noteworthy relative to flat growth across the credit card industry. Program wins with Bon-Ton (formerly with HSBC), Talbots (formerly in-house), Pier One (formerly with Chase), Barneys (formerly in-house) coupled with numerous new product launches have propelled ADS’ receivables growth.  The recent announcement and pending acquisition of the Zale portfolio (currently with Citi) only reinforces ADS’ growth agenda.  Ed Heffernan, ADS President and CEO, recently stated that the company plans to focus on expanding the credit card segment for the next 2-3 years and is targeting a number of programs in the $300 – $500MM range.

ADS has also been diversifying its client roster both within retail and into more traditional co-brand/affinity segments. In addition to its flagship presence in mid-market soft-goods retail, ADS has clients in hard goods (e.g., jewelry, furniture), petroleum, and a few niche sectors (e.g., medical, resorts,).   Its most visible play outside of the core retail sector includes the recent addition of Caesars Entertainment and Ohio University. With these moves, especially the Caesars program, ADS has sent a strong message of its intent to compete with legacy co-brand issuers.  However, similar to its retail strategy, we expect ADS to pick its spots in terms of program size and focus on specialized, mid-sized players in distinct verticals.  Over time, other issuers have struggled to diversify (to and from their origins in private label or co-branding) due to capability requirements, operating cost differentials, unique product/sector risk, or simply the price of entry in terms of program compensation.  From our perspective, ADS weathered the credit crisis in part by exerting a lot of discipline prior to the crisis when growth and diversification opportunities were plentiful.  A similar level of discipline and an ability to uniquely leverage the assets of its sister businesses (Epsilon, LoyaltyOne) could differentiate ADS and help them avoid the mistakes of others with diversification ambitions.

Figure 1: Average Receivables
(Private Label Services and Credit)

Source: ADS SEC Filings.

Figure 2: ADS Program Evolution
Source: ADS press releases and company filings, Fist Annapolis Consulting estimates.

For more information, please contact Ryan Douglas, Senior Consultant specializing in Card Issuing,

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